Trustee in Deed of Trust is Nominal Party for Diversity Jurisdiction

Anderson v. Wells Fargo Bank, N.A., 953 F.3d 311 (5th Cir. 2020) – Pro se plaintiff Anderson filed multiple lawsuits alleging that her lender improperly enforced an adjustable-rate rider in her deed of trust and that an assignment of the deed of trust was invalid. The parties settled the first lawsuit, and as part of the settlement, Anderson signed a release on any claims that were or could have been asserted. The courts dismissed Anderson’s subsequently filed lawsuits. This case addressed Anderson’s sixth lawsuit. Defendants removed the case to federal court and then moved to dismiss on res judicata grounds. The district court found that Anderson’s claims were barred by her previous lawsuits. On appeal, Anderson made the additional argument that the district court lacked diversity jurisdiction because Anderson and the trustee for the deed of trust, who had been named as a defendant, were both Mississippi residents. The Fifth Circuit Court of Appeals disagreed, finding that the trustee was merely a nominal party whose presence did not defeat diversity. The Fifth Circuit explained that a trustee is not necessarily a nominal party when a plaintiff alleges that the trustee misadministered the trust or committed other similar misconduct. However, a trustee should be disregarded as nominal for jurisdictional purposes if there are no “meaningful” allegations against the trustee or the trustee lacks a “special stake” in the litigation. In this case, the Fifth Circuit found that Anderson’s complaint made no claim of the trustee being actively involved in any events which formed the basis of Anderson’s claims, and therefore the trustee was a nominal party.

Note 1: This case raises the question of how “meaningful” the allegations against the trustee must be for the trustee not to be considered a nominal party. Can a plaintiff simply state in his complaint that a non-diverse trustee “misadministered” the trust and avoid removal? A plaintiff would likely need to include more than a conclusory allegation of misadministration or other misconduct to avoid removal to federal court.

Note 2: This holding is clearly correct. While trustees in deeds of trust in other states have broader roles, the only obligation of a trustee in a deed of trust in Mississippi is to conduct a non-judicial foreclosure of the real estate if the beneficiary requests the trustee to do so. This narrow scope of responsibility is one reason why the trustee is protected from personal liability.

To learn more about the co-authors, Rod Clement and Lindy Brown, visit Rod’s member profile or firm profile or Lindy’s firm profile.

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